AHDB Pig Market Weekly

AHDB Pig Market Weekly - 21 March 2016

EU production fall still some way off

There is little doubt that the recent weakness of UK pig prices has been affected by the low prices in the rest of the EU. There was a widespread expectation that, despite relatively low feed prices, this would lead to many producers reducing their herds or leaving the industry altogether. Results from the December 2015 pig census confirm that this has indeed happened in a number of Member States. However, expansion elsewhere, notably in Spain, has limited the reduction.

Based on the December census results, the EU Commission’s forecasting working group for pig meat updated its forecasts at a meeting in Brussels on Monday. The new estimates from group members, coupled with official ones from those Member States not represented at the meeting, show EU pig slaughterings in the first half of 2016 slightly higher than in the same period of 2015. For the second half of the year, the latest forecasts have production starting to fall back, albeit only marginally in the third quarter.

The working group also produces quarterly price forecasts for the coming year. Prices are forecast to rise during the spring and summer, assuming reasonably favourable seasonal demand. However, they are not expected to get any higher than they did last summer. With supply tightening to some extent in the latter part of the year, prices are not expected to fall back as sharply as in the last two years, meaning they could move above year earlier levels. How these trends affect the UK market will, of course, also depend on the exchange rate between the pound and the euro.The latest forecasts confirm that expectations of a recovery in the EU market in the short-term may be premature and 2016 looks likely to be another difficult year for EU producers.

UK pig meat exports higher imports down in January

UK exports of fresh and frozen pork increased by 17% in January to 16,900 tonnes compared to the same period a year earlier. This was driven by a doubling in shipments to China. Interestingly, shipments to the US also more than doubled year on year taking its percentage share of UK trade from 2% to 4%. Australia, which in January 2014 took no product from the UK, bought in 170 tonnes of UK pig meat in January this year. The value of UK pork exports also increased, by as much as 23% on the year in January, with exports for the month totalling £17.9 million given an increase in the average export price. The average unit price that the US paid for UK pig meat actually decreased on the year by 4% to £2.94/kg although that for Australian increased by nearly 30% to £2.24/kg. Both are clearly higher valued markets as the overall UK export price only averaged £1.06/kg.

Exports of offal increased by as much as 135% in January compared to a year earlier continuing the strong export performance of recent months with shipments now averaging 7,000 tonnes per month. Exports to China increased by 175% compared to a year earlier while trade with the Philippines was up over four times. Exports of bacon were down 6% on December but still well up on January last year. However, the apparent sharp rise in exports of sausages and processed pig meat needs to be treated with caution and the data subject to revision.

Imports of fresh and frozen pork in January were not only slightly down compared with January 2015 but they were also at their lowest level since May last year. Lower prices have probably contributed to the year on year volume fall in January with reductions of 10 per cent in both sterling and euro and so contributed to the ongoing price pressure on UK producers. Volumes were well up from Denmark, by 16%, but this contrasted with sharp reductions for the Netherlands and Germany. Imports of all other categories with the exception of offal were also lower. Bacon shipments were reduced by a 35% fall for Danish product.

UK pig prices

The EU-spec SPP saw a modest increase of 0.25p to 112.37p/kg in the week ending 12 March. This is the first increase recorded for 17 weeks and may be the first sign that the bottom of the market has now been reached. A better supply and demand balance is contributing to this development. Spot prices remain stable, which is also encouraging in the run up to the Easter holiday period.

The average carcase weight fell again for the fourth consecutive week, down 0.6kg to 83.1kg on the previous week, while the average probe measurement increased slightly to 11.3mm. This suggests that finished pigs may be coming forward to market a little earlier to rationalise herd sizes slightly. Estimated slaughterings decreased 4% to 176,000 for the week ending 12 March but were 4% up on the same week last year. This may be a further indication that supplies are beginning to tighten, and in turn further stimulate the price.

The EU-spec APP fell by 0.14p to 115.69p/kg for the week ending 5 March 2016, narrowing the gap further between the SPP and APP although still it resides under the 4p threshold. The current quote is nearly 21p behind the same point last year, with the gap tightening slightly as prices were falling at a faster rate in 2015.

Prices in the 30kg weaner market largely stood on from the previous week for week ending 12 March, falling only slightly by £0.07 to £36.54. 7kg weaners recorded a price increase of £1.04 to £29.36 for the same week the first rise since the beginning of February. Throughputs of 30kg and 7kg weaners were both reported to be up. These price movements continue to reflect the uncertain outlook in the finisher market.

Small gain in GB sow productivity in 2015

The productivity of the GB breeding pig herd improved again in 2015, according to latest figures from Agrosoft, but the gain was smaller than in most recent years. The number of pigs weaned per sow per year averaged 24.1 across all breeding herds, 0.2 more than in 2014. This is the smallest rise recorded since 2010, with increases of 0.4 to 0.6 in the intervening years. Both indoor and outdoor herds recorded similar improvements. Modest gains in the number of piglets born alive per litter and pre-weaning mortality were behind the rise in productivity, partly offset by a slight drop in the number of litters per sow.

The picture was less positive for the feeding herd, with both rearing and finishing stages recording a higher Feed Conversion Ratio in 2015 than the previous year. There was a particularly sharp rise in the rearing herd, from 1.71 to 1.89, with daily weight gain lower as well. The change was more marginal in the feeding herd, from 2.67 to 2.69, which may just be the result of slightly heavier finished weights. The average finishing daily liveweight gain was higher than in 2014.

Details of these and other performance indicators can be found by clicking here. You can also see how the top third and top 10% of producers compare with the average.

The mixed picture on physical performance over the last year suggests that many producers can do more to make improvements, especially as GB performance still lags behind much of the rest of the EU. This would also help to minimise production costs and, hence, maintain margins, which is particularly important in the current challenging market.

Producer share of retail price continues to fall

Farmgate pig prices continued to fall in February 2016, although the rate of decline has steadied of late, to average 116.66p/kg, the lowest level recorded since March 2008. This was a decline of almost 5p/kg from the previous month. However, over the same period, the average retail price increased by over 1%, leaving it at a similar level to a year earlier. The result of this was that the share of the retail price received by the producer fell again, to 30%, at a time where the percentage share was already at the lowest level seen for over a decade. Compared with the same period last year, the percentage share received by producers has fallen 6 percentage points.

There was a dichotomy in retail price movements by cut in February, according to the data collected by AHDB Market Intelligence. Boneless leg and boneless shoulder both saw increases of 3%, traditional pork sausage prices rose by 2% and fillet of pork and minced pork were up by 1%. Fillet end leg and loin steak prices largely stood on, while loin chops and diced pork both recorded price decreases, of 1% and 2% respectively. When compared with the same period a year earlier, fillet end leg and fillet of pork both showed a marked increase in the average retail price (of 9% and 7% respectively), while the largest decrease was recorded in the retail price of diced pork (-4%). With the exception of boneless leg, which has seen a year-on-year price increase of 5%, all other cuts recorded minor price decreases of no more than 2%, or largely stood on.

Feed market update

UK feed wheat futures (May-16) closed yesterday (15 March) at £103.60/t which is a small decrease of £0.40/t from Tuesday to Tuesday. May-16 Chicago wheat futures closed at $175.34/t, an increase of $4.41/t on the week with Chicago maize recording a smaller increase of $3.15/t, closing at $145.08/t. The increase in international grain futures markets was partly due to a combination of factors in the US especially a weaker dollar, less than ideal weather and stronger maize export sales.USDA have reduced the global ending stocks for wheat, maize and soyabeans in their latest WASDE report (9 March) but they are still expected to be at record levels, signifying little change to global market fundamentals.

UK wheat exports in January totalled 310Kt according to HMRC’s latest trade data, recording the highest monthly level since December 2011 which brings season to date (Jul-Jun) wheat exports up 21% to 1.3Mt. Exports have been helped by the weakening of sterling against the euro since the start of the year.As at Friday (11 Mar), UK rapemeal (34%, ex-mill Erith) for March delivery was £149/t, up £6/t from the previous week. Brazilian soyameal (48% ex-store Liverpool) for March delivery recorded a weekly decrease of £1/t, to £262/t, on Friday. Global soyabean stocks were trimmed to a still record 79Mt (80Mt in January), because of higher estimates for crushing in Brazil, as well as more exports from Argentina.

EU pig prices record a slight fall

Pig prices in the EU have fallen slightly over the past few weeks, following a short period of stability. The latest average pig price, for week ended 6 March, was €124.50 per 100kg. This recorded price is lower than the pre-Private Storage Aid (PSA) level and has led to cries from several member states to reopen the PSA scheme amid concerns that the stabilising effect it had on prices has been short-lived. With prices returning to their lowest levels for eleven years, EU producers remain under considerable financial pressure. However, there have been reports that demand is beginning to be stimulated in the run up to Easter, notably in Germany, due to low prices. With the German market being a major signpost for the EU price, there are hopes that this will stimulate the EU price in a positive direction.

In sterling terms, the fall in EU pig prices has been softened slightly due to the weakening of the pound against the euro. The latest price equivalent is 96.9p/kg, which, although it has fallen slightly over the last few weeks, has not returned to pre-PSA levels. The gap between the EU and UK price has risen slightly, to just over 13p/kg (week ending 6 March 2016), following a drop to 12p the previous week. However, these differences are the lowest since October 2013 and could potentially support prices on the domestic market by reducing the pressure from imported pork.

The fall in EU pig prices was largely driven by decreases seen in the German and Spanish prices. The Dutch and Belgian quotes also recorded small falls, while the Danish price largely stood on for the 11th consecutive week. Of the major pig producing member states, only France saw price increases, albeit modest ones.